[Federal Register Volume 70, Number 47 (Friday, March 11, 2005)]
[Proposed Rules]
[Pages 12148-12161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4797]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 70, No. 47 / Friday, March 11, 2005 / 
Proposed Rules  

[[Page 12148]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket No. 05-04]
RIN 1557-AB98

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Regulation BB; Docket No. R-1225]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AC89


Community Reinvestment Act Regulations

AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve System (Board); and Federal 
Deposit Insurance Corporation (FDIC).

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The OCC, Board, and FDIC (collectively, ``federal banking 
agencies'' or ``the Agencies'') are issuing this notice of proposed 
rulemaking that would revise certain provisions of our rules 
implementing the Community Reinvestment Act (CRA). We plan to take this 
action in response to public comments received by the federal banking 
agencies and the Office of Thrift Supervision (OTS) on a February 2004 
inter-agency CRA proposal and by the FDIC on its August 2004 CRA 
proposal. The current proposal would address regulatory burden imposed 
on some smaller banks by revising the eligibility requirements for CRA 
evaluation under the lending, investment, and service tests. 
Specifically, the proposal would provide a simplified lending test and 
a flexible new community development test for small banks with an asset 
size between $250 million and $1 billion. Holding company affiliation 
would not be a factor in determining which CRA evaluation standards 
applied to a bank. In addition, the proposal would revise the term 
``community development'' to include certain community development 
activities, including affordable housing, in underserved rural areas 
and designated disaster areas.

DATES: Comments must be received by May 10, 2005.

ADDRESSES: Comments should be directed to:
    OCC: You should include OCC and Docket Number 05-04 in your 
comment. You may submit comments by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     OCC Web Site: http://www.occ.treas.gov. Click on ``Contact 
the OCC,'' scroll down and click on ``Comments on Proposed 
Regulations.''
     E-mail Address: [email protected].
     Fax: (202) 874-4448.
     Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 1-5, Washington, DC 20219.
     Hand Delivery/Courier: 250 E Street, SW., Attn: Public 
Information Room, Mail Stop 1-5, Washington, DC 20219.
    Instructions: All submissions received must include the agency name 
(OCC) and docket number or Regulatory Information Number (RIN) for this 
notice of proposed rulemaking. In general, the OCC will enter all 
comments received into the docket without change, including any 
business or personal information that you provide. You may review 
comments and other related materials by any of the following methods:
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC's Public Information Room, 250 E 
Street, SW., Washington, DC. You can make an appointment to inspect 
comments by calling (202) 874-5043.
     Viewing Comments Electronically: You may request e-mail or 
CD-ROM copies of comments that the OCC has received by contacting the 
OCC's Public Information Room at [email protected].
     Docket: You may also request available background 
documents and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. R-1225, by 
any of the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [email protected]. Include docket 
number in the subject line of the message.
     Fax: 202/452-3819 or 202/452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, except as necessary for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
    FDIC: You may submit comments, identified by RIN number by any of 
the following methods:
     Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on 
the Agency Web Site.
     E-mail: [email protected]. Include the RIN number in the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m.
     Instructions: All submissions received must include the 
agency name and RIN for this rulemaking. All comments received will be 
posted without change to http://www.fdic.gov/regulations/laws/federal/propose.html

[[Page 12149]]

including any personal information provided.

FOR FURTHER INFORMATION CONTACT:
    OCC: Michael Bylsma, Director, or Margaret Hesse, Special Counsel, 
Community and Consumer Law Division, (202) 874-5750; Karen Tucker, 
National Bank Examiner, Compliance Division, (202) 874-4428; or Patrick 
T. Tierney, Attorney, Legislative and Regulatory Activities (202) 874-
5090, Office of the Comptroller of the Currency, 250 E Street, SW., 
Washington, DC 20219.
    Board: William T. Coffey, Senior Review Examiner, (202) 452-3946; 
Catherine M.J. Gates, Oversight Team Leader, (202) 452-3946; Kathleen 
C. Ryan, Counsel, (202) 452-3667; or Dan S. Sokolov, Senior Attorney, 
(202) 452-2412, Division of Consumer and Community Affairs, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue, NW., Washington, DC 20551.
    FDIC: Richard M. Schwartz, Counsel, Legal Division, (202) 898-7424; 
Susan van den Toorn, Counsel, Legal Division, (202) 898-8707; or Robert 
W. Mooney, Chief, CRA and Fair Lending Policy Section, Division of 
Supervision and Consumer Protection, (202) 898-3911; Federal Deposit 
Insurance Corporation, 550 17th Street, NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Background

    Advance Notice of Proposed Rulemaking. In 1995, when the OCC, the 
Board, the OTS, and the FDIC (collectively, ``federal banking and 
thrift agencies'' or ``four agencies'') adopted major amendments to 
regulations implementing the Community Reinvestment Act, they committed 
to reviewing the amended regulations in 2002 for their effectiveness in 
placing performance over process, promoting consistency in evaluations, 
and eliminating unnecessary burden. (60 FR 22156, 22177, May 4, 1995). 
The review was initiated in July 2001 with the publication in the 
Federal Register of an advance notice of proposed rulemaking (66 FR 
37602, July 19, 2001). The federal banking and thrift agencies 
indicated that they would determine whether and, if so, how the 
regulations should be amended to better evaluate financial 
institutions' performance under CRA, consistent with the Act's 
authority, mandate, and intent. The four agencies solicited comment on 
the fundamental issue of whether any change to the regulations would be 
beneficial or warranted, and on eight discrete aspects of the 
regulations. About 400 comment letters were received, most from banks 
and thrifts of varying sizes and their trade associations (``financial 
institutions'') and local and national nonprofit community advocacy and 
community development organizations (``community organizations'').
    The comments reflected a consensus that certain fundamental 
elements of the regulations are sound, but demonstrated a disagreement 
over the need and reasons for change. Community organizations advocated 
that the regulations needed to be changed to reflect developments in 
the industry and marketplace; financial institutions were concerned 
principally with reducing burden consistent with maintaining or 
improving the regulations' effectiveness. In reviewing these comments, 
the federal banking and thrift agencies were particularly mindful of 
the need to balance the desire to make changes that might ``fine tune'' 
the regulations, with the need to avoid unnecessary and costly 
disruption to reasonable CRA policies and procedures that the industry 
has put into place under the current rules.
    Joint Agency Regulatory Proposal to Address Small Institution 
Regulatory Burden and Illegal or Predatory Lending Practices. In 
February 2004, the federal banking and thrift agencies issued identical 
proposals to amend their respective CRA regulations to increase the 
limit on the asset size of institutions classified as ``small 
institutions'' that are eligible for streamlined CRA evaluations and 
exempt from CRA data reporting obligations. (69 FR 5729, Feb. 6, 2004). 
Under the current rule, a ``small institution'' is an institution that 
has less than $250 million in assets and is either independent or a 
member of a holding company with less than $1 billion in assets. The 
four agencies proposed to re-define a ``small institution'' as one with 
fewer than $500 million in assets. The holding company criterion would 
have been eliminated under the proposal.
    The commenters were deeply split on the proposal. A majority of 
over 250 community bank commenters, and all of the trade associations 
commenting on behalf of community banks, urged the federal banking and 
thrift federal banking agencies to extend the proposed burden relief to 
all institutions with assets under $2 billion, or at least to all 
institutions with assets under $1 billion; a few favored the proposed 
$500 million threshold. Virtually every one of over 250 community group 
commenters strongly opposed changing the definition of ``small 
institution'' or exempting any more institutions from the three-part 
test (lending, services, and investments). These commenters urged that 
the threshold not be changed so that community development activities 
continue to be evaluated, as they are today, in banks with $250 million 
or more in assets.
    The federal banking and thrift agencies also proposed to revise and 
clarify the regulations to provide that evidence of certain abusive and 
illegal credit practices will adversely affect an agency's evaluation 
of a bank's CRA performance, including evidence of a pattern or 
practice of extending home mortgage or consumer loans based 
predominantly on the foreclosure or liquidation value of the collateral 
by the institution, where the borrower cannot be expected to be able to 
make the payments required under the terms of the loan. The proposal 
clarified that a bank's evaluation will be adversely affected by such 
abusive or illegal credit practices regardless of whether the practices 
involve loans in the bank's assessment area(s) or in any other location 
or geography. It also provided that a bank's CRA evaluation can be 
adversely affected by evidence of such practices by any affiliate, if 
any loans of that affiliate have been considered in the institution's 
CRA evaluation.
    While commenters differed in their reaction to many aspects of the 
proposal, many commenters, including community organizations and 
financial institutions, opposed--as either inadequate or 
inappropriate--the provision that evidence of collateral-based mortgage 
lending would adversely affect a bank's CRA evaluation.
    Recent OTS Rulemaking. On August 18, 2004, the OTS published a 
final rule that expanded the category of ``small savings associations'' 
subject to OTS CRA regulations to those under $1 billion, regardless of 
holding-company affiliation. The OTS announced that it was taking this 
action on July 16, 2004, and that same day, the OCC and the Board 
announced separately that they would not proceed with their respective 
proposals. The Board formally withdrew its proposal. The OCC did not 
formally withdraw its proposal, but did not adopt it.
    On November 24, 2004, the OTS issued another proposed rulemaking to 
revise the definition of ``community development'' to permit 
consideration of such activities in underserved non-metropolitan areas, 
and to solicit comment on the appropriate consideration of such 
community development activities in any areas affected by natural 
disasters or major community disruptions. The OTS

[[Page 12150]]

further solicited comment on providing substantial flexibility in the 
way that CRA ratings are assigned for institutions subject to the 
lending, investment, and service tests (savings associations with 
assets of $1 billion or more). Under the OTS proposal, 50% or more of a 
large savings association's CRA rating would be based on lending, and 
the remaining percentage would be based on any other type or types of 
CRA activity (services or investments) that the association elects to 
have evaluated. The OTS also asked for comment on whether it should 
eliminate the Investment Test entirely.
    FDIC Proposal. On August 20, 2004, the FDIC issued a new proposal 
on the CRA evaluation of banks defined as ``small.'' (69 FR 51611, Aug. 
20, 2004) The FDIC's new proposal would expand the category of ``small 
banks'' to those under $1 billion, regardless of any holding-company 
size or affiliation. For small banks with assets between $250 million 
and $1 billion, the FDIC proposal would add to the five performance 
criteria of the current streamlined small bank test a new sixth 
criterion taking into account a bank's record of community development 
lending, investments, or services ``based on the opportunities in the 
market and the bank's own strategic strengths.'' While these community 
development activities would not be a separately rated test, the FDIC 
requested comment on whether it should apply a separate community 
development test in addition to the existing streamlined performance 
criteria and on what weighting the community development test would 
have in assigning an overall performance rating. The FDIC also proposed 
to expand the definition of ``community development'' to include 
activities that benefit rural areas and individuals in rural areas.
    The FDIC's proposal generated approximately 11,500 comment letters. 
These comments were sent by a wide spectrum of commenters, including 
over 4,000 from community bankers, over 1,500 from various community 
organizations, and over 5,000 from individuals. As with the February 
2004 interagency proposal, the commenters were deeply divided on the 
issues presented in the August proposal. Nearly all of the comments 
received from bankers and banking organizations supported a change in 
the small bank dollar threshold, primarily as a way to reduce 
administrative burden. Bankers were mixed on the community development 
performance criterion. Some supported a community development criterion 
as an effective compromise, while others opposed the criterion 
altogether on one of two grounds: (1) Community development lending and 
investments are already part of the loan-to-deposit performance 
criterion assessing the level of lending activity \1\ or (2) community 
development activities should be based on an overall subjective 
assessment, not an artificial test. Most of the banking commenters 
opposed making the community development test a separate test.
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    \1\ Some commenters also noted that, under existing regulations, 
small banks can elect to be evaluated under the large bank lending, 
investment, and service tests.
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    Community groups almost universally opposed any increase in the 
small bank threshold. These commenters asserted that the burden 
argument made by banks did not justify a change. This group also 
uniformly opposed the community development performance criterion on 
the ground that permitting banks to choose one or more lending, 
investment, and service activities would lead to cut backs in 
investments and services currently required under the large bank test. 
The community group commenters generally supported a separate community 
development test.
    Commenters were mixed on the addition of ``rural'' to the 
definition of ``community development.'' Some supported the proposal 
because it would permit CRA credit for such rural-based activities as 
funding local water projects, school construction, or rehabilitation of 
a Main Street retail district in rural areas lacking sufficient 
financial resources. Many commenters were concerned that the mere 
inclusion of the phrase ``individuals who reside in rural areas'' would 
permit banks to get CRA credit for loans, investments, or services to 
middle-class or wealthy individuals.

Discussion

    The CRA requires the federal banking and thrift agencies to assess 
the record of each insured depository institution in meeting the credit 
needs of its entire community, including low- and moderate-income 
neighborhoods, consistent with safe and sound operation of the 
institution and to take that record into account when the agency 
evaluates an application by the institution for a deposit facility.\2\
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    \2\ 12 U.S.C. 2903.
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    The federal banking agencies continue to believe that it is both 
worthwhile and possible to improve the CRA rules in ways that reduce 
unnecessary burden while at the same time maintaining and improving the 
effective implementation of the CRA. Moreover, we believe that it is 
important to take steps at this time to develop and propose rules to 
achieve these goals, and to work toward achieving standards that 
ultimately can apply on a uniform basis to all banks subject to the 
CRA. Therefore, the federal banking agencies request comment on 
proposed regulatory revisions that balance the objective of providing 
meaningful regulatory relief for additional community banks with the 
objectives of preserving and encouraging meaningful CRA activities by 
those same banks.
    As noted above, commenters were divided on the merits of that 
portion of the February 2004 and August 2004 proposals that would have 
increased the limit on the size of banks that would be eligible for 
treatment as a ``small bank.'' The comments in favor of the proposal 
focused on the potential regulatory relief for insured institutions, 
while those opposed expressed concern that the proposal would result in 
decreased community development activities in areas that are 
particularly in need of credit and investment, notably rural areas.
    In light of these comments, the federal banking agencies request 
comment on this revised proposal. The new proposal addresses both the 
comments from community banks and comments from community 
organizations. It responds to community banks concerned about the 
reduction of undue regulatory burden by extending eligibility for 
streamlined lending evaluations and the exemption from data reporting 
to banks under $1 billion without regard to holding company assets. It 
addresses the concerns of community organizations that urged the 
federal banking and thrift agencies to continue to evaluate community 
development participation, by providing that the community development 
records of banks between $250 million and $1 billion would be 
separately evaluated and rated, but provides a more streamlined basis 
than the current rule for doing so. It responds to suggestions from 
both community banks and community organizations that the definition of 
``community development'' is too confined by proposing a more flexible 
approach to the types of community development activities that would be 
considered, and by expanding the definition of community development 
activities in underserved rural areas and designated disaster areas. In 
short, the new proposal tries to strike a balance between burden 
reduction for community banks and effective evaluation of community 
development by those banks.
    The key differences between this proposal and the February 2004 
interagency proposal are three-fold. First, as with the FDIC's August 
2004

[[Page 12151]]

proposal, the new proposal would raise the threshold for a ``small 
bank'' to banks with assets of less than $1 billion, not $500 million, 
regardless of any holding company size or affiliation. Unlike the prior 
proposals, the new proposal would provide an adjustment of the 
threshold for inflation, based on changes to the Consumer Price Index.
    Second, the new proposal would add a flexible new community 
development test that would be separately rated in CRA examinations for 
banks with at least $250 million and less than $1 billion in assets 
(these banks will be referred to as ``intermediate small banks''). 
Ratings for intermediate small banks would be based on a rating on this 
community development test and on a separate rating for the streamlined 
small bank lending test. An intermediate small bank would not be 
eligible for an overall rating of ``satisfactory'' unless it received 
ratings of ``satisfactory'' on both the lending and community 
development tests.
    Third, the definition of ``community development'' would be 
expanded to encompass: (1) Affordable housing for individuals in 
underserved rural areas and designated disaster areas (in addition to 
low- or moderate-income individuals) and (2) community development 
activities that revitalize or stabilize underserved rural areas and 
designated disaster areas (in addition to low- or moderate-income 
areas).\3\ The current definition of ``community development,'' which 
hinges on targeting low- or moderate-income people or census tracts, 
has been criticized by community banks and community organizations 
alike for needlessly excluding rural areas that often do not have 
census tracts that meet the definition of ``low- or moderate-income.'' 
Indeed, about 60% of non-metropolitan counties lack such low- and 
moderate-income tracts. As a result, many rural areas in need of 
community development activities are not in low- or moderate-income 
tracts.
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    \3\ This represents a change from the FDIC's August 2004 
proposal. In that proposal, FDIC proposed amending the prong of the 
definition of community development relating to community services. 
See 12 CFR 345.12(g)(2).
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    The current definition of ``community development'' also does not 
explicitly provide that it encompasses activities in areas affected by 
disasters. For example, there has been unnecessary uncertainty about 
the CRA treatment of bank revitalization activities in areas affected 
by natural disasters such as hurricanes or in, for example, the 
commercial and residential areas surrounding the site of the World 
Trade Center. Affordable housing for individuals in underserved rural 
areas and in designated disaster areas, and activities that promote the 
revitalization and stabilization of such areas, such as for 
infrastructure improvements, community services, and small business 
development, are fully consistent with the goals and objectives of the 
CRA because these projects can benefit the entire community, including, 
but not limited to, low- or moderate-income individuals or 
neighborhoods.

Size Threshold

    Under the proposal, intermediate small banks would no longer have 
to report originations and purchases of small business, small farm, and 
community development loans. This change would account for most of the 
cost savings and paperwork burden reduction for intermediate small 
banks.
    The proposal also would annually adjust the asset size for small 
and intermediate small banks based on changes to the Consumer Price 
Index. Using an index to adjust dollar figures for the effects of 
inflation is commonplace, and is used in other federal lending 
regulations, such as the Home Mortgage Disclosure Act. 12 U.S.C. 2801 
et seq.

Community Development Test for Intermediate Small Banks

    As stated above, comments were mixed on the FDIC's inquiry as to 
whether the community development test should be separated from the 
current small bank test. Many industry commenters preferred to have a 
community development criterion, which would permit a bank to engage in 
one or more community development activities, and opposed a separate 
community development test. On the other hand, many community 
organizations and others expressed concern that the criterion was 
overly flexible and would result in a narrow focus that would ignore a 
broad range of community needs, including investments.
    The OCC, FDIC, and Board believe that the proposal for a separate 
community development rating presents an appropriate focus on community 
development activities for intermediate small banks and makes 
transparent the weight that community development performance receives 
in the overall rating. Under the proposed community development test 
for these ``intermediate'' small banks, community development loans, 
qualified investments, and community development services would be 
evaluated together, resulting in a single rating for community 
development performance. While the lending test for small banks permits 
consideration of community development lending and qualified 
investments ``as appropriate,'' such activities by an intermediate 
small bank generally would be considered under the community 
development test. An intermediate small bank's rating for community 
development would play a significant role in the bank's overall rating, 
as would its rating on the separate test of the bank's lending. To 
ensure that community development performance and retail lending are 
appropriately weighted under the proposal, and given the flexibility 
that would be available to satisfy the community development test 
through a variety of activities, an intermediate small bank would have 
to achieve a rating of at least satisfactory on both tests to be 
assigned an overall rating of satisfactory.
    The number and amount of community development loans, the number 
and amount of qualified investments, and the provision of community 
development services, by an intermediate small bank, and the bank's 
responsiveness through such activities to community development 
lending, investment, and services needs, would be evaluated in the 
context of the bank's capacities, business strategy, the needs of the 
relevant community, and the number and types of opportunities for 
community development activities. The federal banking agencies intend 
that the proposed community development test would be applied flexibly 
to permit a bank to apply its resources strategically to the types of 
community development activities (loans, investments, and services) 
that are most responsive to helping to meet community needs, even when 
those activities are not necessarily innovative, complex, or new.
    As noted in the February 2004 proposal, some community banks face 
intense competition for a limited supply of qualified investments that 
are safe and sound and yield an acceptable return. Competition for 
scarce investments also may result in ``churning,'' or the repeated 
purchase and sale, of the same pool of investments. To ``fill the 
silo'' of investments for purposes of the CRA investment test, these 
banks may have made or purchased investments that may not be meaningful 
or responsive to the needs of their community, whereas additional 
lending or provision of services by the bank could have been more 
responsive to local community development needs. The OCC, FDIC, and 
Board recognize that these constraints may affect the investment 
performance of particular banks, and believe that a more flexible 
community

[[Page 12152]]

development test for intermediate small banks provides a better 
framework to evaluate a bank's capacity, the types of investments that 
are reasonably available in a bank's community, and how a bank fosters 
community development goals in its assessment areas.
    As part of the proposed community development test for intermediate 
small banks, the OCC, FDIC, and Board also anticipate that examiners 
would use their discretion, using performance context, to assign 
appropriate weight in a bank's current period rating to prior-period 
outstanding investments that reflect a substantial financial commitment 
or outlay by the bank designed to have a multi-year impact, in addition 
to investments made during the current examination cycle.
    In providing this flexibility for intermediate small banks, it is 
not the intention of the federal banking agencies to permit a bank to 
simply ignore one or more categories of community development. Nor 
would the proposal prescribe any required threshold proportion of 
community development loans, qualified investments, and community 
development services for these banks. Instead, the OCC, FDIC, and Board 
would expect that a bank will appropriately assess the needs in its 
community, engage in different types of community development 
activities based on those needs and the bank's capacities, and that it 
will take reasonable steps to apply its community development resources 
strategically to meet those needs.
    Under the proposal, retail banking services provided by 
intermediate small banks would no longer be evaluated in a separate 
service test. Instead, services for low- and moderate-income people 
would be taken into account in the community development test. Under 
that test, the federal banking agencies would consider bank services 
intended primarily to benefit low- and moderate-income people, such as 
low-cost bank accounts and banking services such as low-cost remittance 
services.
    Giving banks more flexibility on how to apply their community 
development resources to respond to community needs through a more 
strategic use of loans, investments, and services is intended to reduce 
burden and make the evaluation of community banks' community 
development records more effective.

Community Development Definition

    The regulations' present definition of ``community development'' 
has been criticized by community banks and community organizations 
alike for failing to recognize the unique community development needs 
of certain rural areas. The definition covers four categories of 
activities, three of which (affordable housing, community services, and 
economic development) are defined in terms of the activity's targeting 
of low- or moderate-income people or small businesses or farms, and one 
of which (revitalization and stabilization activities) is defined in 
terms of its targeting of low- or moderate-income census tracts. The 
OCC, FDIC, and Board propose to amend two of the categories--affordable 
housing and revitalization and stabilization activities--by adding 
references to individuals in ``underserved rural areas'' and in 
``designated disaster areas.'' \4\
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    \4\ Staff interpretations of ``affordable housing'' and 
``revitalization and stabilization'' can be found in Interagency 
Questions and Answers Regarding Community Reinvestment, (66 FR 
36620, 36625-36626, July 12, 2001) (Q&A --.12(h)(1)-1, --.12(h)(4)-
1).
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    In response to the FDIC's August 2004 proposal to revise the 
definition of ``community development'' to include the provision of 
affordable housing to individuals in rural areas (in addition to low- 
or moderate-income individuals under the current rule), several 
commenters noted that the provision of affordable housing was critical 
in certain rural areas. Some community organizations serving rural 
areas commented that the CRA process should promote affordable housing 
in rural areas across the country.
    As described in the ``Request for Comments'' discussion below, the 
OCC, FDIC, and Board seek comment on a variety of approaches to 
identify the community development needs of rural areas. The approach 
reflected in the proposed amendments is based on the premise that the 
provision of affordable housing--in addition to activities that 
revitalize and stabilize underserved rural areas--may meet a critical 
need of individuals in certain underserved rural areas, even if those 
individuals may not meet the technical requirements of the definition 
of ``low- or moderate-income'' in the current regulation. The proposed 
amendment would clarify that bank support of affordable housing that 
benefits individuals in need of affordable housing in underserved rural 
areas will qualify as a community development activity.
    With respect to the current definition covering revitalization and 
stabilization activities, this category does not address revitalization 
and stabilization activities in most rural counties, since most rural 
counties do not have any low- or moderate-income census tracts.\5\ 
Under the CRA regulation, a tract's income classification derives from 
its relationship to the median family income of the state's rural, or 
non-metropolitan areas as a whole, which could be relatively low and 
declining. Community banks and community organizations have said that 
the tract-income limitation has made the definition of ``community 
development'' ineffective for addressing the needs of rural areas that 
do not have low- or moderate-income tracts, but are in decline, have 
been designated for redevelopment, or need revitalizing or stabilizing. 
This aspect of the proposed amendment to the definition of ``community 
development'' is designed to recognize the benefits of activities that 
revitalize and stabilize underserved rural areas that do not meet the 
technical definition of ``low- or moderate-income'' census tracts. Such 
activities might include, depending upon the circumstances, state or 
local infrastructure bonds and loans to construct healthcare 
facilities. They would not include, however, activities that benefit 
primarily higher-income individuals in underserved rural areas or rural 
areas that are not underserved. In evaluating the responsiveness of 
community development activities in underserved rural areas, examiners 
would give significant weight to factors such as the extent to which 
low- or moderate-income individuals benefited from the activities.
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    \5\ Under the definition of ``low- or moderate-income'' census 
tract in the CRA regulations, 57 percent of non-metropolitan 
counties have no low- or moderate-income tracts, compared to 13 
percent of metropolitan counties. The reason for this disparity is 
that rural census tracts are drawn over relatively large geographic 
areas, often having relatively heterogeneous populations that, when 
averaged, tend toward the middle. This leads to a concentration of 
72 percent of rural census tracts in the middle-income category, 
which leaves a small share (15 percent) in the low- and moderate-
income categories. Moreover, because most rural counties have 
relatively few census tracts, the relatively few low- or moderate-
income rural census tracts are distributed unevenly among rural 
counties. As would be expected, they also appear to be distributed 
unevenly among bank CRA assessment areas. About 42 percent of non-
metropolitan assessment areas reported by large banks in 2003, 
compared to 14 percent of the metropolitan assessment areas they 
reported, lacked such tracts. (The regulation requires large banks 
to report their assessment areas; the assessment areas of small 
banks are not required to be reported.)
---------------------------------------------------------------------------

    Under the revised community development definition, a ``designated 
disaster area'' is an area that has received an official designation as 
a disaster area.

[[Page 12153]]

Effect of Certain Credit Practices on CRA Evaluations

    The OCC, FDIC, and Board again propose to revise the regulations to 
address the impact on a bank's CRA rating of evidence of discrimination 
or other illegal credit practices. The regulations would provide that 
evidence of discrimination, or evidence of credit practices that 
violate an applicable law, rule, or regulation, will adversely affect 
an agency's evaluation of a bank's CRA performance. The regulations 
also would be revised to include an illustrative list of such 
practices, including evidence of discrimination against applicants on a 
prohibited basis in violation of, for example, the Equal Credit 
Opportunity (15 U.S.C. 1691 et seq.) or Fair Housing Acts (42 U.S.C. 
3601 et seq.); evidence of illegal referral practices in violation of 
section 8 of the Real Estate Settlement Procedures Act (12 U.S.C. 
2607); evidence of violations of the Truth in Lending Act (12 U.S.C. 
1601 et seq.) concerning a consumer's right to rescind a credit 
transaction secured by a principal residence; evidence of violations of 
the Home Ownership and Equity Protection Act (15 U.S.C. 1639); and 
evidence of unfair or deceptive credit practices in violation of 
section 5 of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)).\6\ 
We believe that specifying examples of violations that give rise to 
adverse CRA consequences in the CRA regulations, rather than solely in 
interagency guidance on the regulations, will improve the usefulness of 
the regulations and provide critical information in primary compliance 
source material.
---------------------------------------------------------------------------

    \6\ Evidence of credit practices that violate other laws, rules 
or regulations, including a federal banking agency regulation or a 
state law, if applicable, also may adversely affect a bank's CRA 
evaluation.
---------------------------------------------------------------------------

    Under the proposal, a bank's evaluation will be adversely affected 
by such practices regardless of whether the practices involve loans in 
the bank's assessment area(s) or in any other location or geography. In 
addition, a bank's CRA evaluation also can be adversely affected by 
evidence of such practices by any affiliate, if any loans of that 
affiliate have been considered in the bank's CRA evaluation.
    In response to comments on the February 2004 proposal, the federal 
banking agencies do not propose to include in the CRA regulations a 
provision that evidence of collateral-based lending also can adversely 
affect an agency's evaluation of a bank's CRA performance.

Request for Comments

    The OCC, FDIC, and Board welcome comments on any aspect of this 
proposal, particularly, those issues noted below.
     The federal banking agencies invite comment on whether 
other approaches would be more appropriate to addressing the CRA 
burdens and obligations of banks with less than $1 billion in assets. 
Is there another appropriate asset threshold to use when defining 
intermediate small banks, and, if so, why?
     We seek comment on the proposal to adjust the asset size 
for small and intermediate small banks on an ongoing basis, based on 
changes to the Consumer Price Index.
     Under the proposal, banks with assets between $250 million 
and $1 billion will no longer be required to report data on small 
business, small farm, and community development lending. The federal 
banking agencies seek comment specifically addressing whether and how 
the public has used the loan information that has been reported to date 
by such intermediate small banks (for example, by reference to specific 
studies on bank lending patterns that used the data), and whether other 
sources of data about this lending can be used for such purposes going 
forward.
     Does the proposal provide more flexibility in how an 
intermediate small bank may apply its community development resources 
through a more strategic use of loans, investments and services? Does 
the proposal to permit examiners to use performance context to give 
consideration in a current-period rating, to prior-period outstanding 
investments that reflect a substantial financial commitment by the 
bank, also provide more flexibility for intermediate small banks?
     Does the proposal to evaluate all community development 
activities of intermediate small banks under one test have the 
potential to make the evaluations of those banks' community development 
performance more effective than under the current regulation?
     Should the community development test for intermediate 
small banks be separately rated as proposed? If so, should an 
intermediate small bank be required to achieve a rating of at least 
``satisfactory'' under both the small bank lending and community 
development tests to achieve an overall ``satisfactory'' CRA rating? 
Should the bank's community development test performance be weighted 
equally with its lending test performance in assigning an overall CRA 
rating? Would other ratings floors or weights be appropriate to provide 
greater flexibility in certain circumstances? If so, under what 
circumstances?
     The federal banking agencies seek comment on whether the 
existing definition of ``community development'' provides sufficient 
recognition for community services to individuals residing in 
underserved rural areas and designated disaster areas and, if not, how 
to encourage the provision of such services to persons in underserved 
rural areas and designated disaster areas that have the greatest 
need.\7\
---------------------------------------------------------------------------

    \7\ The FDIC's August NPRM added individuals in rural 
communities to the community services category. Comments were mixed 
in response to this part of that proposal. Some commenters expressed 
the concern that a broader definition would permit consideration of 
activities that benefit middle- and upper-income individuals. On the 
other hand, others stated that the regulations should recognize that 
some rural communities lack financial resources for economic and 
infrastructure improvement such as school construction, revitalizing 
Main Street, and maintaining or improving water and sewer systems. 
Banks are frequently called upon to help meet these needs. In light 
of these comments, this proposal would not change the definition of 
community development regarding community services provided to low- 
or moderate-income individuals. Rather, the proposal recognizes that 
activities that revitalize and stabilize underserved areas may also 
include many activities that benefit rural residents. We also seek 
comment on whether the definition of ``community development'' 
should be amended to explicitly include community services targeted 
to individuals in undeserved rural and designated disaster areas.
---------------------------------------------------------------------------

     We also seek comment on the merits of the proposed 
treatment of the definition of ``community development'' in underserved 
rural and designated disaster areas and invite suggestions for 
alternatives.
     We seek comment on the proper way to define ``rural.'' 
Should we adopt a definition and, if so, which one? For example, should 
all areas outside a metropolitan area be considered ``rural''? 
Alternatively, should the federal banking agencies define rural 
consistent with the definition employed by the Census Bureau? The 
Census Bureau defines any territory or population not meeting its 
criteria for ``urban'' to be ``rural.'' Are there other definitions the 
federal banking agencies should consider?
     We also seek comment on the proper way to define 
``underserved'' when used in connection with rural areas. Should we 
adopt a definition and, if so, which one? For example, should the term 
refer solely to those rural areas showing signs of economic distress or 
lack of investment? If so, what indicia should the federal banking 
agencies use to identify such rural areas? Should we use criteria from 
other federal programs, such as the Community Development

[[Page 12154]]

Financial Institutions Fund (CDFI) rules? Indicators used by the CDFI 
Fund to define ``investment areas'' include counties with (a) 
unemployment rates one-and-a-half times the national average, (b) 
poverty rates of 20% or more, or (c) population loss of 10 percent or 
more between the previous and most recent census, or a net migration 
loss of 5 percent or more over the five-year period preceding the most 
recent census.
     Should ``underserved rural area'' be defined in the 
regulation to also encompass those rural areas that have been targeted 
by a governmental agency for redevelopment, without regard to median 
income characteristics of the area?
     Should ``underserved rural area'' be limited to low- and 
moderate-income areas, without regard to whether those areas show signs 
of economic distress, lack of investment, or are targeted for 
redevelopment by a governmental agency? If so, should the OCC, FDIC, 
and Board adopt a different method than currently exists in the 
regulation for determining when a rural area is low- or moderate-
income? For example, under the current regulations, the area must be a 
low- or moderate-income census tract, which the regulations define as a 
tract with median family income that does not exceed 80% of the 
statewide non-metropolitan median family income. Would raising the low- 
and moderate-income threshold in non-metropolitan communities from 80% 
of non-metropolitan median family income to some higher figure, such as 
85%, 90%, or 100%, more appropriately identify underserved rural areas? 
Alternatively, would identifying another measure of median income 
instead of the non-metropolitan median income, such as the statewide 
median income, more appropriately define low- and moderate-income for 
purposes of defining underserved rural areas by reference to low- and 
moderate-income characteristics?
     As proposed, the definition of ``community development'' 
would encompass affordable housing for people who do not meet the 
regulatory definition of ``low- or moderate-income'' if, and only if, 
they reside in underserved rural areas. The federal banking agencies 
seek comment on whether the current regulatory definition of ``low- or 
moderate-income individual'' is unduly restrictive for purposes of 
identifying individuals in rural areas who need affordable housing. If 
so, in what ways?

Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec. 
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the federal banking 
agencies to use plain language in all proposed and final rules 
published after January 1, 2000. We invite your comments on how to make 
the proposal easier to understand. For example:
     Have we organized the material to suit your needs? If not, 
how could this material be better organized?
     Are the requirements in the proposal clearly stated? If 
not, how could the regulation be more clearly stated?
     Does the proposal contain language or jargon that is not 
clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
     What else could we do to make the regulation easier to 
understand?

Community Bank Comment Request

    In addition, we invite your comments on the impact of this proposal 
on community banks. The federal banking agencies recognize that 
community banks operate with more limited resources than larger 
institutions and may present a different risk profile. Thus, the 
federal banking agencies specifically request comments on the impact of 
the proposal on community banks' current resources and available 
personnel with the requisite expertise, and whether the goals of the 
proposal could be achieved, for community banks, through an alternative 
approach.

Regulatory Flexibility Act

    OCC and FDIC: Under section 605(b) of the Regulatory Flexibility 
Act (RFA), 5 U.S.C. 605(b), the regulatory flexibility analysis 
otherwise required under section 604 of the RFA is not required if an 
agency certifies, along with a statement providing the factual basis 
for such certification, that the rule will not have a significant 
economic impact on a substantial number of small entities. The OCC and 
FDIC have reviewed the impact of this proposed rule on small banks and 
certify that the proposed rule will not have a significant economic 
impact on a substantial number of small entities.
    The Small Business Administration (SBA) has defined ``small 
entities'' for banking purposes as a bank or savings institution with 
less than $150 million in assets. See 13 CFR 212.01. This proposed rule 
primarily affects banks with assets of at least $250 million and under 
$1 billion. The proposed amendments decrease the regulatory burden for 
banks within that asset range by relieving them of certain reporting 
and recordkeeping requirements applicable to larger institutions.
    The proposal to eliminate the $1 billion holding company threshold 
as a factor in determining whether banks will be subject to the 
streamlined CRA examination or the more in-depth CRA examination 
applicable to larger institutions will impact a limited number of small 
banks, which are affiliated with holding companies with assets over $1 
billion. The FDIC estimates that only 110 of approximately 5,300 FDIC-
regulated banks had assets of under $150 million and were affiliated 
with a holding company with over $1 billion in assets. The OCC 
estimates that only 36 of approximately 2,000 OCC-regulated banks met 
these criteria. Because so few small banks will be affected by the 
proposed revisions to Parts 25 and 345, a regulatory flexibility 
analysis is not required. Nevertheless, the OCC and FDIC are willing, 
in response to any comments received regarding the proposal's economic 
impact on small banks with assets of under $150 million, to reevaluate 
the RFA certifications and, if appropriate, publish regulatory 
flexibility analyses in conjunction with the issuance of any final 
rule.
    Board: Subject to certain exceptions, the Regulatory Flexibility 
Act (5 U.S.C. 601-612) (RFA) requires an agency to publish an initial 
regulatory flexibility analysis with a proposed rule whenever the 
agency is required to publish a general notice of proposed rulemaking 
for a proposed rule. The Supplementary Information describes the 
proposed regulations and the proposal's objectives. The Board, in 
connection with its initial regulatory flexibility analysis, requests 
public comment in the following areas.

A. Reasons for the Proposed Rule

    As described in the SUPPLEMENTARY INFORMATION section, the Board, 
together with the other Agencies, seek to improve the effectiveness of 
the CRA regulations in placing performance over process, promoting 
consistency in evaluations, and eliminating unnecessary burden. The 
proposed rule is intended to reduce unnecessary burden while 
maintaining or improving CRA's effectiveness in evaluating performance.

[[Page 12155]]

B. Statement of Objectives and Legal Basis

    The Supplementary Information describes the proposal's objectives. 
The legal basis for the proposed rule is section 806 of the CRA.

C. Description of Small Entities To Which the Rule Applies

    The proposed rule would apply to all state-chartered banks that are 
members of the Federal Reserve System; there are approximately 932 such 
banks. The RFA requires the Board to consider the effect of the 
proposal on small entities, which are defined for RFA purposes as all 
banks with assets of less than $150 million. There are 473 state member 
banks with less than $150 million of assets. All but about 12 state 
member banks with assets of less than $150 million are already subject 
to a streamlined CRA process that is unaffected by this proposal. The 
rule would eliminate data reporting requirements for these 12 state 
member banks by eliminating holding-company affiliation as a 
disqualification for treatment as a ``small bank'' under the CRA 
regulations.

D. Projected Reporting, Recordkeeping and Other Compliance Requirements

    The Board does not believe that the proposed rule imposes any new 
reporting or recordkeeping requirements, as defined in section 603 of 
the RFA. As noted, the rule would eliminate holding-company affiliation 
as a disqualification for treatment as a ``small bank'' under the CRA 
regulations. Accordingly, the rule would eliminate data reporting 
requirements for about 12 state member banks with assets of less than 
$150 million. As noted above, all other state member banks with assets 
under $150 million are already exempt from this reporting requirement.
    The Board believes that the proposed revisions to the definition of 
``community development'' would not place additional compliance costs 
or burdens on small institutions. Instead, this proposal would add 
greater flexibility to the definition in response to requests made by 
many small banks. The Board believes the same of the provisions 
regarding the effect of evidence of illegal credit practices on CRA 
evaluations. State banks of all sizes are already subject to laws 
against such practices, and the proposal would not affect that.
    The Board seeks information and comment on whether application of 
the proposed rule would impose any costs, compliance requirements, or 
changes in operating procedures in addition to or which may differ from 
those arising from the application of the statute.

E. Identification of Duplicative, Overlapping, or Conflicting Federal 
Rules

    The Board does not believe there are any federal statutes or 
regulations that would duplicate, overlap, or conflict with the 
proposed rule. The Board seeks comment regarding any statues or 
regulations, including state or local statutes or regulations, that 
would duplicate, overlap, or conflict with the proposed rule.

F. Discussion of Significant Alternatives

    The proposed rule maintains the approach of the existing CRA 
regulations in exempting small entities from reporting requirements and 
providing for streamlined lending evaluations for small entities. A 
complete exemption of small entities from all of the CRA's requirements 
would be impermissible under the CRA statute. The Board welcomes 
comments on any significant alternatives that would minimize the impact 
of the proposed rule on small entities.

Executive Order 12866

    The OCC has determined that this proposed rule is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency 
prepare a budgetary impact statement before promulgating any rule 
likely to result in a Federal mandate that may result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. The OCC has determined that the proposal will not result in 
expenditures by State, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. Accordingly, the 
proposal is not subject to section 202 of the Unfunded Mandates Act.

Paperwork Reduction Act

Request for Comment on Proposed Information Collection

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, the Agencies may not conduct or sponsor, and the respondent is 
not required to respond to, an information collection (IC) unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number (OCC, 1557-0160; Board, 7100-0197; and FDIC, 3064-0092).
    The FDIC has obtained OMB-approval for the paperwork burden 
associated with its CRA regulation at 12 CFR Part 345 under OMB IC 
3064-0092. The change in burden to IC 3064-0092 associated with this 
proposal to raise the threshold for small banks from those with under 
$250 million in assets to those with under $1 billion in assets was 
submitted to and approved by OMB in connection with a similar proposal 
published by the FDIC in August 2004 (69 FR 51611, Aug. 20, 2004). This 
interagency proposal would not, if adopted as final, result in any 
added change in burden to IC 3064-0092. Therefore, the FDIC is not 
required to make a submission to OMB under the Paperwork Reduction Act 
at this time. Nevertheless, the FDIC joins the OCC and the Board in 
seeking additional comment on the paperwork burden associated with the 
current proposal.
    The Agencies give notice that, at the end of the comment period, 
the proposed collections of information, along with an analysis of the 
comments, and recommendations received, will be submitted to OMB for 
review and approval.
    Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the Agencies' functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimates of the burden of the information 
collection, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    At the end of the comment period, the comments and recommendations

[[Page 12156]]

received will be analyzed to determine the extent to which the 
information collections should be modified prior to submission to OMB 
for review and approval. The comments will also be summarized or 
included in the Agencies' requests to OMB for approval of the 
collections. All comments will become a matter of public record.
    Comments should be addressed to:
    OCC: Mary H. Gottlieb or Camille Dixon, Office of the Comptroller 
of the Currency, Legislative and Regulatory Activities Division, 
Attention: Docket No. 05-04, 250 E Street, SW., Mailstop 8-4, 
Washington, DC 20219. Due to delays in paper mail in the Washington 
area, commenters are encouraged to submit their comments by fax to 
(202) 874-4889 or by e-mail to [email protected].
    Board: Comments should refer to Docket No. R-1225 and may be mailed 
to Jennifer J. Johnson, Secretary, Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, 
DC 20551. Please consider submitting your comments through the Board's 
Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm, by e-mail to [email protected], or by 
fax to the Office of the Secretary at (202) 452-3819 or (202) 452-3102. 
Rules proposed by the Board and other federal agencies may also be 
viewed and commented on at http://www.regulations.gov.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, except as necessary for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (C and 20th 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
    FDIC: Leneta G. Gregorie, Legal Division, Room MB-3082, Federal 
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 
20429. All comments should refer to the title of the proposed 
collection. Comments may be hand-delivered to the guard station at the 
rear of the 17th Street Building (located on F Street), on business 
days between 7 a.m. and 5 p.m., Attention: Comments/Executive 
Secretary, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
    Comments should also be sent to Mark D. Menchik, Desk Officer, 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Room 10235, Washington, DC 20503. Comments may also be sent by 
e-mail to [email protected].
    Title of Information Collection:
    OCC: Community Reinvestment Act Regulation--12 CFR 25.
    Board: Recordkeeping, Reporting, and Disclosure Requirements in 
Connection with Regulation BB (Community Reinvestment Act).
    FDIC: Community Reinvestment--12 CFR 345.
    Frequency of Response: Annual.
    Affected Public:
    OCC: National banks.
    Board: State member banks.
    FDIC: State nonmember banks.
    Abstract: This Paperwork Reduction Act section estimates the burden 
that would be associated with the regulations were the agencies to 
change the definition of ``small institution'' as proposed, that is, 
increase the asset threshold from $250 million to $1 billion and 
eliminate any consideration of holding-company size. The two proposed 
changes, if adopted, would make ``small'' approximately 1,522 insured 
depository institutions that do not now have that status. That estimate 
is based on data for all FDIC-insured institutions that filed Call 
Reports in 2004. Those data also underlie the estimated paperwork 
burden that would be associated with the regulations if the proposals 
were adopted by the agencies. The proposed change to amend the 
intermediate small bank performance standards to incorporate a separate 
community development test would have no impact on paperwork burden 
because the evaluation is based on information prepared by examiners.
    Estimated Paperwork Burden under the Proposal:
    OCC:
    Number of Respondents: 1,877.
    Estimated Time per Response: Small business and small farm loan 
register, 219 hours; Consumer loan data, 326 hours; Other loan data, 25 
hours; Assessment area delineation, 2 hours; Small business and small 
farm loan data, 8 hours; Community development loan data, 13 hours; 
HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium 
or third party, 17 hours; Affiliated lending data, 38 hours; Request 
for designation as a wholesale or limited purpose bank, 4 hours; 
Strategic Plan, 275 hours; and Public file, 10 hours.
    Total Estimated Annual Burden: 160,782 hours.
    Board:
    Number of Respondents: 934.
    Estimated Time per Response: Small business and small farm loan 
register, 219 hours; Consumer loan data, 326 hours; Other loan data, 25 
hours; Assessment area delineation, 2 hours; Small business and small 
farm loan data, 8 hours; Community development loan data, 13 hours; 
HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium 
or third party, 17 hours; Affiliated lending data, 38 hours; Request 
for designation as a wholesale or limited purpose bank, 4 hours; and 
Public file, 10 hours.
    Total Estimated Annual Burden: 114,580 hours.
    FDIC:
    Number of Respondents: 5,296.
    Estimated Time per Response: Small business and small farm loan 
register, 219 hours; Consumer loan data, 326 hours; Other loan data, 25 
hours; Assessment area delineation, 2 hours; Small business and small 
farm loan data, 8 hours; Community development loan data, 13 hours; 
HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium 
or third party, 17 hours; Affiliated lending data, 38 hours; Request 
for designation as a wholesale or limited purpose bank, 4 hours; and 
Public file, 10 hours.
    Total Estimated Annual Burden: 193,975 hours.

Executive Order 13132

    The OCC has determined that this proposal does not have any 
Federalism implications, as required by Executive Order 13132.

List of Subjects

12 CFR Part 25

    Community development, Credit, Investments, National banks, 
Reporting and recordkeeping requirements.

12 CFR Part 228

    Banks, Banking, Community development, Credit, Investments, 
Reporting and recordkeeping requirements.

12 CFR Part 345

    Banks, Banking, Community development, Credit, Investments, 
Reporting and recordkeeping requirements.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons discussed in the joint preamble, part 25 of chapter 
I of title 12 of the Code of Federal Regulations is proposed to be 
amended as follows:

[[Page 12157]]

PART 25--COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT 
PRODUCTION REGULATIONS

    1. The authority citation for part 25 continues to read as follows:

    Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215, 
215a, 481, 1814, 1816, 1828(c), 1835a, 2901 through 2907, and 3101 
through 3111.

    2. In Sec.  25.12, revise paragraphs (g)(1), (g)(4), and (u) to 
read as follows:


Sec.  25.12  Definitions.

* * * * *
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low- or moderate-income individuals, individuals in underserved rural 
areas, or individuals located in designated disaster areas;
* * * * *
    (4) Activities that revitalize or stabilize low- or moderate-income 
geographies, underserved rural areas, or designated disaster areas.
* * * * *
    (u) Small bank--(1) Definition. Small bank means a bank that, as of 
December 31 of either of the prior two calendar years, had assets of 
less than $1 billion. Intermediate small bank means a small bank with 
assets of at least $250 million and less than $1 billion as of December 
31 of both of the prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the OCC, based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
* * * * *
    3. Revise Sec.  25.26 to read as follows:


Sec.  25.26  Small bank performance standards.

    (a) Performance criteria--(1) Small banks with assets of less than 
$250 million. The OCC evaluates the record of a small bank that is not, 
or that was not during the prior calendar year, an intermediate small 
bank, of helping to meet the credit needs of its assessment area(s) 
pursuant to the criteria set forth in paragraph (b) of this section.
    (2) Intermediate small banks. The OCC evaluates the record of a 
small bank that is, or that was during the prior calendar year, an 
intermediate small bank, of helping to meet the credit needs of its 
assessment area(s) pursuant to the criteria set forth in paragraphs (b) 
and (c) of this section.
    (b) Lending test. A small bank's lending performance is evaluated 
pursuant to the following criteria:
    (1) The bank's loan-to-deposit ratio, adjusted for seasonal 
variation, and, as appropriate, other lending-related activities, such 
as loan originations for sale to the secondary markets, community 
development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
    (3) The bank's record of lending to and, as appropriate, engaging 
in other lending-related activities for borrowers of different income 
levels and businesses and farms of different sizes;
    (4) The geographic distribution of the bank's loans; and
    (5) The bank's record of taking action, if warranted, in response 
to written complaints about its performance in helping to meet credit 
needs in its assessment area(s).
    (c) Community development test. An intermediate small bank's 
community development performance also is evaluated pursuant to the 
following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;
    (3) The extent to which the bank provides community development 
services; and
    (4) The bank's responsiveness through such activities to community 
development lending, investment, and services needs.
    3a. Revise Sec.  25.28, paragraph (c) to read as follows:


Sec.  25.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory or other illegal credit 
practices.
    (1) The OCC's evaluation of a bank's CRA performance is adversely 
affected by evidence of discriminatory or other illegal credit 
practices in any geography by the bank or in any assessment area by any 
affiliate whose loans have been considered as part of the bank's 
lending performance. In connection with any type of lending activity 
described in Sec.  25.22(a), evidence of discriminatory or other credit 
practices that violate an applicable law, rule, or regulation includes, 
but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the bank's assigned rating, the OCC 
considers the nature, extent, and strength of the evidence of the 
practices; the policies and procedures that the bank (or affiliate, as 
applicable) has in place to prevent the practices; any corrective 
action that the bank (or affiliate, as applicable) has taken or has 
committed to take, including voluntary corrective action resulting from 
self-assessment; and any other relevant information.
    4. In Appendix A to part 25, revise paragraph (d) to read as 
follows:

Appendix A to Part 25--Ratings

* * * * *
    (d) Banks evaluated under the small bank performance 
standards.--(1) Lending test ratings.--(i) Eligibility for a 
satisfactory lending test rating. The OCC rates a small bank's 
lending performance ``satisfactory'' if, in general, the bank 
demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's size, financial condition, the credit 
needs of its assessment area(s), and taking into account, as 
appropriate, other lending-related activities such as loan 
originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other 
lending-related activities for individuals of different income 
levels (including low- and moderate-income individuals) and 
businesses and farms of different sizes that is reasonable given the 
demographics of the bank's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the bank's performance 
in helping to meet the credit needs of its assessment area(s); and
    (E) A reasonable geographic distribution of loans given the 
bank's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small bank that meets each of the standards for a ``satisfactory'' 
rating under this paragraph and exceeds some or all of those 
standards may warrant consideration for a lending test rating of 
``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small bank may also receive a lending test rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its

[[Page 12158]]

performance has failed to meet the standard for a ``satisfactory'' 
rating.
    (2) Community development test ratings for intermediate small 
banks--(i) Eligibility for a satisfactory community development test 
rating. The OCC rates an intermediate small bank's community 
development performance ``satisfactory'' if the bank demonstrates 
adequate responsiveness to the community development needs of its 
assessment area(s) or a broader statewide or regional area that 
includes the bank's assessment area(s) through community development 
loans, qualified investments, and community development services. 
The adequacy of the bank's response will depend on its capacity for 
such community development activities, its assessment area's need 
for such community development activities, and the availability of 
such opportunities for community development in the bank's 
assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The OCC rates an intermediate small bank's community 
development performance ``outstanding'' if the bank demonstrates 
excellent responsiveness to community development needs in its 
assessment area(s) through community development loans, qualified 
investments, and community development services, as appropriate, 
considering the bank's capacity and the need and availability of 
such opportunities for community development in the bank's 
assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small bank may also receive a community development 
test rating of ``needs to improve'' or ``substantial noncompliance'' 
depending on the degree to which its performance has failed to meet 
the standards for a ``satisfactory'' rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small bank may receive an assigned overall 
rating of ``satisfactory'' unless it receives a rating of at least 
``satisfactory'' on both the lending test and the community 
development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small bank that receives an ``outstanding'' rating on 
one test and at least ``satisfactory'' on the other test may receive 
an assigned overall rating of ``outstanding.''
    (B) A small bank that is not an intermediate small bank that 
meets each of the standards for a ``satisfactory'' rating under the 
lending test and exceeds some or all of those standards may warrant 
consideration for an overall rating of ``outstanding.'' In assessing 
whether a bank's performance is ``outstanding,'' the OCC considers 
the extent to which the bank exceeds each of the performance 
standards for a ``satisfactory'' rating and its performance in 
making qualified investments and its performance in providing 
branches and other services and delivery systems that enhance credit 
availability in its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small bank may also receive a rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standards for a 
``satisfactory'' rating.
* * * * *

Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the joint preamble, the Board of 
Governors of the Federal Reserve System proposes to amend part 228 of 
chapter II of title 12 of the Code of Federal Regulations as follows:

PART 228--COMMUNITY REINVESTMENT (REGULATION BB)

    1. The authority citation for part 228 continues to read as 
follows:

    Authority: 12 U.S.C. 321, 325, 1828(c), 1842, 1843, 1844, and 
2901 et seq.

    2. In Sec.  228.12, revise paragraphs (g)(1), (g)(4), and (u) to 
read as follows:


Sec.  228.12  Definitions.

* * * * *
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low-or moderate-income individuals, individuals in underserved rural 
areas, or individuals located in designated disaster areas;
* * * * *
    (4) Activities that revitalize or stabilize low- or moderate-income 
geographies, underserved rural areas, or designated disaster areas.
* * * * *
    (u) Small bank--(1) Definition. Small bank means a bank that, as of 
December 31 of either of the prior two calendar years, had assets of 
less than $1 billion. Intermediate small bank means a small bank with 
assets of at least $250 million and less than $1 billion as of December 
31 of both of the prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the Board, based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
* * * * *
    3. Revise Sec.  228.26 to read as follows:


Sec.  228.26  Small bank performance standards.

    (a) Performance criteria--(1) Small banks with assets of less than 
$250 million. The Board evaluates the record of a small bank that is 
not, or that was not during the prior calendar year, an intermediate 
small bank, of helping to meet the credit needs of its assessment 
area(s) pursuant to the criteria set forth in paragraph (b) of this 
section.
    (2) Intermediate small banks. The Board evaluates the record of a 
small bank that is, or that was during the prior calendar year, an 
intermediate small bank, of helping to meet the credit needs of its 
assessment area(s) pursuant to the criteria set forth in paragraphs (b) 
and (c) of this section.
    (b) Lending test. A small bank's lending performance is evaluated 
pursuant to the following criteria:
    (1) The bank's loan-to-deposit ratio, adjusted for seasonal 
variation, and, as appropriate, other lending-related activities, such 
as loan originations for sale to the secondary markets, community 
development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
    (3) The bank's record of lending to and, as appropriate, engaging 
in other lending-related activities for borrowers of different income 
levels and businesses and farms of different sizes;
    (4) The geographic distribution of the bank's loans; and
    (5) The bank's record of taking action, if warranted, in response 
to written complaints about its performance in helping to meet credit 
needs in its assessment area(s).
    (c) Community development test. An intermediate small bank's 
community development performance also is evaluated pursuant to the 
following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;
    (3) The extent to which the bank provides community development 
services; and
    (4) The bank's responsiveness through such activities to community 
development lending, investment, and services needs.
    3a. Revise Sec.  228.28(c) to read as follows:


Sec.  228.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The Board's evaluation of a bank's CRA performance is 
adversely affected by evidence of discriminatory or other illegal 
credit practices in any geography by the bank or in any assessment area 
by any affiliate whose

[[Page 12159]]

loans have been considered as part of the bank's lending performance. 
In connection with any type of lending activity described in Sec.  
228.22(a), evidence of discriminatory or other credit practices that 
violate an applicable law, rule, or regulation includes, but is not 
limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the bank's assigned rating, the 
Board considers the nature, extent, and strength of the evidence of the 
practices; the policies and procedures that the bank (or affiliate, as 
applicable) has in place to prevent the practices; any corrective 
action that the bank (or affiliate, as applicable) has taken or has 
committed to take, including voluntary corrective action resulting from 
self-assessment; and any other relevant information.
    4. In Appendix A to part 228, revise paragraph (d) to read as 
follows:

Appendix A to Part 228--Ratings

* * * * *
    (d) Banks evaluated under the small bank performance 
standards.--(1) Lending test ratings.--(i) Eligibility for a 
satisfactory lending test rating. The Board rates a small bank's 
lending performance ``satisfactory'' if, in general, the bank 
demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's size, financial condition, the credit 
needs of its assessment area(s), and taking into account, as 
appropriate, other lending-related activities such as loan 
originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other 
lending-related activities for individuals of different income 
levels (including low- and moderate-income individuals) and 
businesses and farms of different sizes that is reasonable given the 
demographics of the bank's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the bank's performance 
in helping to meet the credit needs of its assessment area(s); and
    (E) A reasonable geographic distribution of loans given the 
bank's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small bank that meets each of the standards for a ``satisfactory'' 
rating under this paragraph and exceeds some or all of those 
standards may warrant consideration for a lending test rating of 
``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small bank may also receive a lending test rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standard for a 
``satisfactory'' rating.
    (2) Community development test ratings for intermediate small 
banks--(i) Eligibility for a satisfactory community development test 
rating. The Board rates an intermediate small bank's community 
development performance ``satisfactory'' if the bank demonstrates 
adequate responsiveness to the community development needs of its 
assessment area(s) or a broader statewide or regional area that 
includes the bank's assessment area(s) through community development 
loans, qualified investments, and community development services. 
The adequacy of the bank's response will depend on its capacity for 
such community development activities, its assessment area's need 
for such community development activities, and the availability of 
such opportunities for community development in the bank's 
assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The Board rates an intermediate small bank's community 
development performance ``outstanding'' if the bank demonstrates 
excellent responsiveness to community development needs in its 
assessment area(s) through community development loans, qualified 
investments, and community development services, as appropriate, 
considering the bank's capacity and the need and availability of 
such opportunities for community development in the bank's 
assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small bank may also receive a community development 
test rating of ``needs to improve'' or ``substantial noncompliance'' 
depending on the degree to which its performance has failed to meet 
the standards for a ``satisfactory'' rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small bank may receive an assigned overall 
rating of ``satisfactory'' unless it receives a rating of at least 
``satisfactory'' on both the lending test and the community 
development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small bank that receives an ``outstanding'' rating on 
one test and at least ``satisfactory'' on the other test may receive 
an assigned overall rating of ``outstanding.''
    (B) A small bank that is not an intermediate small bank that 
meets each of the standards for a ``satisfactory'' rating under the 
lending test and exceeds some or all of those standards may warrant 
consideration for an overall rating of ``outstanding.'' In assessing 
whether a bank's performance is ``outstanding,'' the Board considers 
the extent to which the bank exceeds each of the performance 
standards for a ``satisfactory'' rating and its performance in 
making qualified investments and its performance in providing 
branches and other services and delivery systems that enhance credit 
availability in its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small bank may also receive a rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standards for a 
``satisfactory'' rating.
* * * * *

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the joint preamble, the Board of 
Directors of the Federal Deposit Insurance Corporation proposes to 
amend part 345 of chapter III of title 12 of the Code of Federal 
Regulations to read as follows:

PART 345--COMMUNITY REINVESTMENT

    1. The authority citation for part 345 continues to read as 
follows:

    Authority: 12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u and 2901-
2907, 3103-3104, and 3108(a).

    2. In Sec.  345.12, revise paragraphs (g)(1), (g)(4), and (u) to 
read as follows:


Sec.  345.12  Definitions.

* * * * *
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low- or moderate-income individuals, individuals in underserved rural 
areas, or individuals located in designated disaster areas;
* * * * *
    (4) Activities that revitalize or stabilize low- or moderate-income 
geographies, underserved rural areas, or designated disaster areas.
* * * * *
    (u) Small bank--(1) Definition. Small bank means a bank that, as of 
December 31 of either of the prior two calendar years, had assets of 
less than $1 billion. Intermediate small bank means a small bank with 
assets of at least $250 million and less than $1 billion as of December 
31 of both of the prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the

[[Page 12160]]

FDIC, based on the year-to-year change in the average of the Consumer 
Price Index for Urban Wage Earners and Clerical Workers, not seasonally 
adjusted, for each twelve-month period ending in November, with 
rounding to the nearest million.
* * * * *
    3. Revise Sec.  345.26 to read as follows:


Sec.  345.26  Small bank performance standards.

    (a) Performance criteria--(1) Small banks with assets of less than 
$250 million. The FDIC evaluates the record of a small bank that is 
not, or that was not during the prior calendar year, an intermediate 
small bank, of helping to meet the credit needs of its assessment 
area(s) pursuant to the criteria set forth in paragraph (b) of this 
section.
    (2) Intermediate small banks. The FDIC evaluates the record of a 
small bank that is, or that was during the prior calendar year, an 
intermediate small bank, of helping to meet the credit needs of its 
assessment area(s) pursuant to the criteria set forth in paragraphs (b) 
and (c) of this section.
    (b) Lending test. A small bank's lending performance is evaluated 
pursuant to the following criteria:
    (1) The bank's loan-to-deposit ratio, adjusted for seasonal 
variation, and, as appropriate, other lending-related activities, such 
as loan originations for sale to the secondary markets, community 
development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
    (3) The bank's record of lending to and, as appropriate, engaging 
in other lending-related activities for borrowers of different income 
levels and businesses and farms of different sizes;
    (4) The geographic distribution of the bank's loans; and
    (5) The bank's record of taking action, if warranted, in response 
to written complaints about its performance in helping to meet credit 
needs in its assessment area(s).
    (c) Community development test. An intermediate small bank's 
community development performance also is evaluated pursuant to the 
following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;
    (3) The extent to which the bank provides community development 
services; and
    (4) The bank's responsiveness through such activities to community 
development lending, investment, and services needs.
    3a. Revise Sec.  345.28(c) to read as follows:


Sec.  345.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The FDIC's evaluation of a bank's CRA performance is 
adversely affected by evidence of discriminatory or other illegal 
credit practices in any geography by the bank or in any assessment area 
by any affiliate whose loans have been considered as part of the bank's 
lending performance. In connection with any type of lending activity 
described in Sec.  345.22(a), evidence of discriminatory or other 
credit practices that violate an applicable law, rule, or regulation 
includes, but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the bank's assigned rating, the 
FDIC considers the nature, extent, and strength of the evidence of the 
practices; the policies and procedures that the bank (or affiliate, as 
applicable) has in place to prevent the practices; any corrective 
action that the bank (or affiliate, as applicable) has taken or has 
committed to take, including voluntary corrective action resulting from 
self-assessment; and any other relevant information.
    4. In Appendix A to part 345, revise paragraph (d) to read as 
follows:

Appendix A to Part 345--Ratings

* * * * *
    (d) Banks evaluated under the small bank performance standards--
(1) Lending test ratings.--
    (i) Eligibility for a satisfactory lending test rating. The FDIC 
rates a small bank's lending performance ``satisfactory'' if, in 
general, the bank demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's size, financial condition, the credit 
needs of its assessment area(s), and taking into account, as 
appropriate, other lending-related activities such as loan 
originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other 
lending-related activities for individuals of different income 
levels (including low- and moderate-income individuals) and 
businesses and farms of different sizes that is reasonable given the 
demographics of the bank's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the bank's performance 
in helping to meet the credit needs of its assessment area(s); and
    (E) A reasonable geographic distribution of loans given the 
bank's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small bank that meets each of the standards for a ``satisfactory'' 
rating under this paragraph and exceeds some or all of those 
standards may warrant consideration for a lending test rating of 
``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small bank may also receive a lending test rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standard for a 
``satisfactory'' rating.
    (2) Community development test ratings for intermediate small 
banks--(i) Eligibility for a satisfactory community development test 
rating. The FDIC rates an intermediate small bank's community 
development performance ``satisfactory'' if the bank demonstrates 
adequate responsiveness to the community development needs of its 
assessment area(s) or a broader statewide or regional area that 
includes the bank's assessment area(s) through community development 
loans, qualified investments, and community development services. 
The adequacy of the bank's response will depend on its capacity for 
such community development activities, its assessment area's need 
for such community development activities, and the availability of 
such opportunities for community development in the bank's 
assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The FDIC rates an intermediate small bank's community 
development performance ``outstanding'' if the bank demonstrates 
excellent responsiveness to community development needs in its 
assessment area(s) through community development loans, qualified 
investments, and community development services, as appropriate, 
considering the bank's capacity and the need and availability of 
such opportunities for community development in the bank's 
assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small bank may also receive a community development 
test rating of ``needs to improve'' or ``substantial noncompliance'' 
depending on the degree to which its performance has failed to meet 
the standards for a ``satisfactory'' rating.

[[Page 12161]]

    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small bank may receive an assigned overall 
rating of ``satisfactory'' unless it receives a rating of at least 
``satisfactory'' on both the lending test and the community 
development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small bank that receives an ``outstanding'' rating on 
one test and at least ``satisfactory'' on the other test may receive 
an assigned overall rating of ``outstanding.''
    (B) A small bank that is not an intermediate small bank that 
meets each of the standards for a ``satisfactory'' rating under the 
lending test and exceeds some or all of those standards may warrant 
consideration for an overall rating of ``outstanding.'' In assessing 
whether a bank's performance is ``outstanding,'' the FDIC considers 
the extent to which the bank exceeds each of the performance 
standards for a ``satisfactory'' rating and its performance in 
making qualified investments and its performance in providing 
branches and other services and delivery systems that enhance credit 
availability in its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small bank may also receive a rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standards for a 
``satisfactory'' rating.
* * * * *

    Dated: February 22, 2005.
Julie L. Williams,
Acting Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, March 4, 2005.
Jennifer J. Johnson,
Secretary of the Board.
    By order of the Board of Directors.

    Dated at Washington, DC, this 22nd day of February, 2005.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

[FR Doc. 05-4797 Filed 3-10-05; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P